The Law and the overwhelming majority of declarations of co-ownership require that syndicates of co-owners insure their building. This may seem surprising at first glance as the syndicate does not own the private portions nor the common portions. However, its object is to ensure the preservation and the longevity of the building and to manage and administer it diligently following the rules of the trade. This is why legislator have given to the syndicate an insurable interest and has made it compulsory that it subscribe building insurance.
The property covered
The insurance must cover the common portions, the private portions (excluding the improvements carried therein), and the movable property owned by the syndicate. The insurance policy will provide that the syndicate is the named insured. You must keep in mind that neither the co-owners nor their hypothecary creditors are the insured in a co-ownership. As for the improvements made to the units, it is the duty of each co-owner to protect, by the means of own personal insurance, those that he or a previous owner may have made to his private portion.
The insurance policy of the syndicate covers not only damage resulting from theft or fire, but all usual risks. Therefore, your Board of Directors should subscribe an “all risk” policy.
Only accidental losses are covered. We are protected from damaging consequences of unpredictable, sudden and random events. Non-accidental damages are not usually covered by the insurer. The insurer also does not cover losses resulting from a inherent defect to the thing, such as a latent defect or a defect in workmanship in the construction of the immovable. The same applies to damages resulting from a recurrent lack of maintenance of the common portions. Therefore, the syndicate must maintain them rigorously. The insurer will not pay for it in its place.
The Law requires that the insurance of the immovable be subscribed to cover its “replacement value”. This value is the amount necessary to rebuild the immovable, in the case of a total loss, without any deduction for normal wear and tear (depreciation). Furthermore, one must take into account the cost of demolition and disposal of the debris, the fees of the professionals, such as the engineer or the architect, the cost of bringing the building up to current standards (retrofitting), and taxes (GST and QST). At the occasion of subscribing a policy, the broker or the damage insurance agent will ask the Board of Directors what is the amount of coverage required.
Required amount of coverage
The obligation to assess the rebuilding value of the building generally rests upon the Board of Directors in accordance with the provisions of the declaration of co-ownership. To benefit from lower premiums, Boards of directors sometime have the tendency to underestimate voluntarily or involuntarily the replacement cost (replacement value) of their building. Failing to insure the immovable for its replacement value, the amount paid out from the insurance may not be sufficient to cover rebuilding costs in the event of a total or partial loss. In such occurrences, the insurer is released by the payment of the amount of the insurance subscribed, if there is a total loss, or of an indemnity calculated in accordance with the co-insurance rule, if there is a partial loss.The directors of the syndicate could then engage the liability of the latter, and even be held personally liable. It is therefore recommended to retain the services of a Chartered Appraiser, a member in good standing of the “Ordre des évaluateurs agréés du Québec (OEAQ)” (the Québec Order of Chartered Appraisers), who will be able to determine the amount of insurance required. This evaluation should be kept up-to-date at least every three to five years by a professional to avoid insurance insufficiency. However, the insurance policy may include a "co-insurance" clause which mitigates the harshness of these principles.
WHAT YOU SHOULD KNOW! The insurance policy of a co-ownership must provide, at all times, a waiver of subrogation of the insurer against the co-owners and the persons living with them. This clause will prevent the insurer of the syndicate from suing a co-owner to be indemnified, in the case of damages for which the co-owner is responsible.
WHAT TO KEEP IN MIND: A co-owner cannot be compelled to reimburse the indemnity paid out by the insurer, as he already pays in his portion of the common expenses, his share of the premium charged by the insurer to the syndicate. He would, in fact, be paying twice.
WARNING! While purchasing the syndicate’s insurance coverage, the Board of Directors must declare any and all information likely to influence an insurer in determining the insurance premium, the appraisal of the risk or the decision to cover. If he fails to provide all relevant information to the insurer, the syndicate may be held liable for a denial of coverage or a reduced indemnity following a claim.
CONSULT THE PUBLICATION: Condo Insurance: Everything you should know at pages 27 and following.